How to protect your business credit score during COVID-19 - Authored article by Wilfred Sigler
The COVID-19 pandemic has wreaked havoc on the world economy. Although the lockdown regulations are being relaxed gradually opening the market, not all businesses have picked up the pace yet. In fact, there are chances that many businesses might need cash flow to survive further. In such a case, maintaining a good credit score for your business is very important. When you apply for a business loan, lenders go through the credit report and credit score of your business. If your business has a good credit score, you are almost halfway through to getting approval for a business loan while a bad credit score can affect your loan eligibility. In this article, we will talk about how you can protect your Business credit report & credit score to ensure it survives the COVID-19 pandemic.
Make timely payments - as hard as it can be
It could be that a sheer lack of business during the pandemic must have really affected your finances. Even though it may get difficult, try to make at least your minimum debt payments by their due date every month to avoid hurting your credit score. Making late payments will stay on your credit history and have long term impacts on your business credit report spanning up to several years. Making regular payments each month will also reduce your pressure in the long run and will avoid piling up of debts.
Communicate your grievance to your lender
It’s important to let your lender know your genuine financial situation in advance (before you miss a payment) so they can make some arrangements for deferring your loan payments. One could make optimum use of the moratorium facility offered by the RBI if there is a difficulty in meeting the financial obligations. It is necessary to report timely the opting of the moratorium with the bank so as to protect the credit score from fluctuating.
Reserve Bank of India (RBI) has made a provision and guidelines for banks to follow while restructuring COVID-stressed loan exposures, across 26 sectors. The recommendations given by the KV Kamath Committee chalks out five financial metrics that need to be taken into account while deciding on a recast plan: total outstanding liabilities/ adjusted tangible net worth, total debt/EBITDA, current ratio, debt service coverage ratio, and average debt service coverage ratio.
Protect your Identity
In times of joblessness, capital losses, limited manufacturing as well as trade opportunities there is a route of financial crime cropping up. Businessmen as well as suppliers are being watchful before engaging in any transactions that reveal their corporate details to protect their financial health.
Hackers can access as well as utilize all your information to impersonate you thereby open current accounts, make purchases, transfer funds, and borrow money - all of which can significantly damage your credit score. One of the ways you can protect yourself from identity theft is by checking your business credit report regularly. Regularly checking your online Business credit score & credit report gives you an opportunity to spot any suspicious transactions that happened in your company’s name that you are unaware of.
Monitor your Business Credit Report
Your business credit report contains all the detailed information about your loans and overdrafts. It is also a way in which you can spot an obsolete or incorrect record hurting your credit score and dispute it with the lenders or credit bureau to get it corrected. A check on your credit score annually with an RBI regulated credit bureau like is an important step to maintain the creditworthiness of your business.
Maintain a clear distinction between your business and personal finances. Your personal credit score and your business credit score are two different scores. However, lenders and others may consider both scores, especially if you are a sole proprietorship or if your business is relatively new and does not have a substantial credit history of its own. Ideally, you should maintain a clear separation between your business and personal credit. This will help establish your company as a business and increase its creditworthiness in the eyes of lenders. Having credit issued to your business, and not linked to you personally, can also protect your personal credit history in the event your business faces financial difficulty. It is wise and advisable to balance payments and receipts to keep the business credit score intact. Long term growth of the business is possible with proper planning and budgeting.
All the above-mentioned tips require taking a proactive approach to protect your finances and line of credit. In such times it is wise to plan and be aware of options available to reap maximum benefits that might potentially harm your financial standing. Taking the right steps will ensure a sustained business and a successful journey out of COVID-19.
Wilfred Sigler , Director – Marketing & Sales at CRIF India. Views are personal
Source: Publication: CNBCTV18, 23rd Sep, 2020